Thailand

Globalisation, Inequality and Thailand 4.0

Professor Sen, Members of the Cambridge Society, Ladies and Gentlemen:

I am honoured to participate in the Amartya Sen Lecture series, and to discuss global economic prospects, and above all Thailand’s future, with such a distinguished and expert audience.

I am especially delighted, since today I met with Prime Minister Prayuth Chan-Ocha who re-iterated Thailand’s strong commitment to intensify co-operation with the OECD, including through the new OECD-Thailand Country Programme. We had already been working closely together for some years through the OECD Southeast Asia Regional Programme, but this Thailand-specific Country Programme is a historic milestone in our ever-deepening engagement. It is the first such programme in Southeast Asia and is fully aligned with Thailand's 20-Year Strategy, the 12th National Economic and Social Development Plan and Thailand 4.0. Moreover, it builds on the Late King Bhumibol Adulyadej’s “Sufficiency Economy Philosophy” in its support of Thailand's efforts at achieving more inclusive and sustainable growth through the Sustainable Development Goals. The Programme will help the Government in its efforts to pull Thailand out of the middle-income trap and propel it into high-income status, and to improve the quality of growth, to make it more inclusive and sustainable.

Towards a more inclusive globalisation

As a global community, we stand at a critical crossroads. For decades, globalisation has facilitated economic growth and productivity gains. It has helped integrate emerging economies in global markets and has lifted hundreds of millions of people out of poverty. It has also helped spread technology, knowledge and culture across the world, creating a vibrant, diverse and interconnected global community.

However, some of the dynamics of globalisation are producing an uneven distribution of costs and opportunities, an unfair sharing of benefits and increasing concentration of income and wealth in a few hands. This has increased inequalities, eroding confidence in our institutions, but also trust in globalisation and open markets.

Take a look at the numbers. The average income of the richest 10% of the population is now around 10 times that of the poorest 10% across the OECD, up from seven times 25 years ago. In Thailand, the difference is also around 10 times. In my own country, Mexico, it is around 20 times. Inequality is even more pronounced in terms of wealth: the richest 10% in the OECD owns around half of all household assets, while the bottom 40% owns barely 3%.

We need to rebalance these numbers. We need to ensure everyone has a chance to improve their well-being. Our response needs to go beyond ‘fixing’ those aspects of globalisation that are fuelling discontent, populism, protectionism and exclusive nationalism.

And we need to fix the growth model. We need to move away from the mantra of growing the pie first and distributing it later, and aspire to achieving growth that is equitable, people-centred and focused on multidimensional well-being. We call this “inclusive growth”.

Since 2012, the OECD’s Inclusive Growth Initiative has been mainstreaming inclusive growth into our analysis and policy recommendations. Our New Approaches to Economic Challenges (NAEC) initiative is also constantly revising OECD models and frameworks to stay at the cutting edge of economic thinking, ensuring well-being and inclusiveness remain the ultimate goal of policy and growth.

In an increasingly interconnected world, we need to act internationally. We need to strengthen international standards, making them more effective in levelling the global playing field and improving inclusiveness. In particular, we need greater international collaboration on competition, taxation, state-owned enterprises, responsible business conduct, fighting corruption and fighting climate change.

And we need to improve global governance, the role of international organisations and multilateral co-operation, to make them more effective and more inclusive. The OECD is taking this message of inclusive globalisation and new approaches to all its Members and Partners, engaging in more horizontal initiatives; boosting our co-operation with emerging and developing economies; increasing our presence and support in the G20, G7, APEC, the Pacific Alliance and others, with whom we are sharing our inclusive growth narrative and our best practices.

At our Ministerial Council Meeting in June on ‘Making Globalisation Work: Better Lives for All’, those gathered around the table recognised that our economic systems and the globalised economy are leaving many behind. Ministers agreed that we need policies that support skills, innovation, long term investment, better quality jobs and inclusive growth.

I am happy to see that the concept of inclusive growth is also embodied in the ambitious Thailand 4.0 strategy, which is key to achieve sustainable growth and development.

Globalisation and inequality in Thailand

Thailand has already made important progress. Inspired by the Sufficiency Economy Philosophy of the late King Bhumibol Adulyadej, successive Thai governments have developed human capital, reduced inequality and strengthened environmental protection. While average growth over the past decade slowed to 3.2% from the boom decades of the 1960s-1990s, significant welfare gains were achieved.

The extreme poverty rate dropped dramatically from 20% in 1981 to 0.2% in 2010. Well-being has improved thanks to better access to education, healthcare and basic infrastructure.

However, regional inequalities between urban and rural areas still loom large. Poverty in Thailand remains primarily a rural phenomenon with over 80% of the country’s 7.1 million poor living in rural areas as of 2014.

The 20-Year Strategy and Thailand 4.0 aim to put Thailand’s economic future on a sustainable pathway by reforming the economy to become more technology-driven and with higher value-added per unit of input. Importantly, it also seeks to ensure that future economic growth benefits all groups in the population, not just a few.

Thailand has achieved near universal access to education at primary level, but quality remains a significant constraint. The OECD’s Programme for International Student Assessment (PISA) has shown that Thai students aged 15 underperform compared to students in Viet Nam and Malaysia. Worryingly, the 2015 PISA results show that outcomes in science, reading and mathematics have actually gone backwards since 2012.

There are also stark regional and socio-economic disparities in educational performance. In rural areas, it is estimated that up to 47% of 15 year olds are functionally illiterate compared with the national average of around a third.

Thailand also needs to train more graduates – and to train them better. As of 2014, only 20% of people had completed tertiary-level education. And amongst graduates, too few have the skills required for high value-added sectors.

The estimated skill shortages in the vocational sector are also large: one study found a 23% shortfall, meaning for every 100 job openings for vocational graduates, only 77 recruits were available.

Not having the right people equipped with the right skills reduces Thailand’s productive efficiency, hampers businesses’ capacity to innovate and holds back economic growth.

Accelerating innovation is another key challenge for Thailand 4.0. As industries and companies innovate, their competitiveness is enhanced, their integration in global value chains rises and the quality of their products improves. The efficient production of higher-quality and higher value-added products leads to sustainable growth in real income and living standards.

To date, technology developed overseas and brought in by foreign investors has been the major source of Thailand’s innovation. Unfortunately, this has not spilled over enough to domestic businesses.

Despite a steady increase in public funding, Thailand’s innovation performance has not materially changed over the past five years, whereas regional competitors like Viet Nam have improved significantly. Indeed, in 2012, Thailand’s Global Innovation index score was 36.9 (out of 100). It has only inched up since, to 37.6 by 2017, placing the country in 51st place out of 127. In contrast, Viet Nam's score increased quite rapidly, from 33.9 in 2012 to 38.3 in 2017, overtaking Thailand's.

Finally, Thailand is facing challenging strong demographic headwinds. The speed of ageing in Thailand is amongst the fastest in the world, but unlike OECD countries – and Japan and Korea in particular - Thailand is ageing at a much lower income level. Providing the necessary pension and healthcare support will take up an increasing share of resources and could crowd out public funding for development and investment.

With the share of the working age population already in decline, Thailand needs to boost its productivity by providing job opportunities for all Thais, ensuring through continued investment throughout people’s life-cycle, with up-skilling and re-skilling at older ages.

To become a more inclusive and high-income economy, Thailand needs to go beyond promoting regional integration and business-friendly regulatory reform. It needs to invest in education and life-long skills training to empower its labour force and make it more productive.

The implementation of the measures outlined in the Government’s most recent National Economic and Social Development Plan will be crucial to reform the education sector in both rural and urban areas. Specifically, Thailand needs to revise the curriculum to improve its clarity, consistency and relevance; strengthen capacity to assess student achievement; boost teacher quality; improve ICT education; and ensure children in rural areas have the same access to quality education as their urban peers.

Stronger collaboration between Government and industry is also required to better align skills development training programmes with the demands of the industry. Providing well-targeted incentives for participation in skills training will help facilitate the reallocation of labour from low to high productivity sectors, enhancing social mobility and reducing inequality.

Thailand is making progress with the adoption of digital technologies and has stepped up investment in physical infrastructure, notably in the very promising Eastern Economic Corridor. However, innovation is not something the Government can do alone. Thailand remains behind its targets for total research and development (R&D) investment, with contributions from the private sector particularly lagging. As Thailand approaches the technology frontier, fostering domestic innovation through increased investment in R&D by all economic sectors is critical.

The OECD works across every one of these areas with its Member and Partner countries, providing targeted policy analysis, advice and effective global standards to enhance competition, foster inclusiveness and promote transparency. We will be leveraging this work with Thailand through our Country Programme. Thailand can also draw on our latest policy tools to promote skills and well-being, which go to the heart of the challenges it faces.

Ladies and Gentlemen,

I’d like to close with the words of Amartya Sen, which encapsulate not only the broad message of this lecture, but the whole mission of the OECD and our NAEC state-of-mind: “Economic growth without investment in human development is unsustainable - and unethical.”

Thailand can count on the OECD to support this investment in its people; Thailand can count on the OECD to work towards the success of the 20-Year Strategy and of Thailand 4.0; in sum, Thailand can count on the OECD to help design, develop and deliver better policies for better lives.